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Prime Ministers and their Chancellors

As the Government’s Autumn budget statement makes headlines, the Downing Street website featured this blog by History Professor Richard Toye. In it he examines the importance of the relationship between the Prime Minister and the Chancellor of the Exchequer.

The connection between Prime Minister and Chancellor of the Exchequer is probably the most important, and potentially the most problematic, of all ministerial relationships. Foreign Secretaries and Home Secretaries can be powerful figures, and yet they rarely have the capacity that a Chancellor does to define, or indeed to destabilise, a premiership. In the modern era, domestic economic management has generally been seen as the most important factor in determining electoral success. The Chancellor, charged with keeping the economy on track, therefore becomes a unique point of strength or weakness for a government and hence for the Prime Minister. If the relationship goes well and the economy thrives, the Prime Minister can feel fairly secure in 10 Downing Street. If it goes wrong – and economic problems will likely be a major factor in this – the consequences can rock a government to its foundations.

It was William Gladstone – four times Chancellor before he was four time Prime Minister – who developed the Exchequer into recognisably modern form. He did not envisage anything like today’s welfare state, being obsessed with ‘retrenchment’, the nineteenth-century term for cutting public expenditure. Rather, he saw the Treasury as a department that could be harnessed to great national purposes. He was not content merely to balance the books on a year-by-year basis but had a political programme and a vision of how to create prosperity, which put the Exchequer at the heart of domestic politics. ‘Finance is, as it were, the stomach of the country, from which all the other organs take their tone’, he commented in 1858.

Behind Gladstone’s efforts at cheese-paring lay a great populist agenda: the reduction of taxation on items consumed by the masses. In a celebrated controversy in 1860 this brought him into conflict with Lord Palmerston, the Prime Minister. Gladstone wanted to abolish duties on paper, the last of the so-called ‘taxes on knowledge’ and a barrier to the production of cheap newspapers. But the very idea of a mass popular press struck many in the political establishment as potentially subversive, and Palmerston and many other ministers were opposed. Gladstone recorded in his diary that in one Cabinet meeting ‘Lord P spoke ¾ hour… [against] Paper Duties Bill!’ The legislation went ahead anyway and passed through the Commons, but Palmerston wrote to Queen Victoria that the House of Lords ‘would perform a good public service’ if it rejected the Bill. The Lords did in fact do so, and Lady Palmerston was ostentatiously pleased. It was Gladstone who had the last laugh, though. The following year he made abolition of the duties part of his Budget, thereby forcing his colleagues and the Lords to swallow it. It clearly helped that he was promoting a cause likely to have strong popular support.

But being the darling of the people is no guarantee of success when manoeuvring against a Prime Minister. Lord Randolph Churchill, father of Winston Churchill, learned this during his brief Chancellorship, to his permanent cost. A brilliantly witty speaker and the rabble-rousing delight of the Conservative grassroots, Lord Randolph turned himself into a force that the Tory leaders were unable to ignore. Appointed to the Treasury by Lord Salisbury while still in his thirties, he proved himself a mercurial colleague who was all-but impossible to work with. Salisbury noted drily that ‘the qualities for which he is most conspicuous have not usually kept men for any length of time at the head of affairs’.

This young meteor soon overplayed his hand, and at the end of 1886, after only a few months in office, he threatened resignation over what he saw as excessive spending on the armed forces. Salisbury called his bluff and accepted. Lord Randolph – who died early a few years later – never held office again.

Lord Randolph was ambitious, and though his own tactics backfired, plenty of his successors used the office of Chancellor to promote their own careers. Of Queen Victoria’s ten Prime Ministers, only Gladstone and Disraeli used the Chancellorship as a step upon the ladder. Of the twenty-one Prime Ministers since her death, ten served at the Treasury at some point before entering Number 10. By contrast, only five had served as Foreign Secretary, and two of these had also been Chancellor. So, when choosing Chancellors, twentieth-century Prime Ministers needed to watch their backs. On the other hand, it was no good simply appointing an unthreatening non-entity as Chancellor. In a more media conscious age, Chancellors needed to be heavyweights who could take the heat and demonstrate a bit of political showmanship.

David Lloyd George epitomised this new kind of Chancellor. He immediately ran afoul of Margot Asquith, the new Prime Minister’s wife, who suspected him of leaking a list of Cabinet appointments to the press. Asquith himself, though, was fairly relaxed about Lloyd George’s activities, even when his radical Liberal policies helped provoke a constitutional crisis. Lloyd George’s tax-raising ‘People’s Budget’ of 1909 marked a new kind of populism, based on public spending rather than retrenchment, and was a foundational moment in the birth of the welfare state. During the battle with the House of Lords that followed, Asquith sometimes distanced himself from his Chancellor’s wilder rhetorical excesses, but did little to actively rein him in. Although Lloyd George did eventually displace Asquith as Prime Minister during the First World War, the peacetime relationship between the two men was handled by both with considerable skill.

In the interwar years, Winston Churchill stands out as the most colourful Chancellor, serving a Prime Minister, Baldwin, who was even more laid-back than Asquith. Baldwin took little hand in what was arguably the biggest economic decision taken on his watch – the return to the gold standard in 1925 – leaving the question to Churchill and his advisers. Neville Chamberlain, Chancellor successively to MacDonald and Baldwin in the 1930s, came to feel that ‘I am more and more carrying this government on my back’.

Baldwin’s supposed laziness was to some extent a pose, but it also represented one of the final gasps of an older style of government in which the Prime Minister merely presided, and left detailed initiatives to his colleagues.

After 1945, the continued expansion of the state and the growing demands of the media required of Prime Ministers a more activist stance on economic policy. This was a time when the state was committed to a new goal, the maintenance of full employment, whilst Britain’s loss of great power status and relative economic decline generated a narrative of failure against which governments constantly struggled. In 1958, Harold Macmillan’s entire team of Treasury ministers resigned in protest at the Prime Minister’s unwillingness to implement spending cuts that the Chancellor, Peter Thorneycroft, thought necessary to battle inflation. The way in which Macmillan succeeded in shrugging this off as ‘little local difficulty’ became a legendary example of his ‘unflappability’. But when he sacked another Chancellor, Selwyn Lloyd, during the so-called the Night of the Long Knives, it was widely seen as a sign of panic in the face of political and economic bad news. Macmillan’s days in Downing Street were numbered.

In spite of the short-lived experiment of the Department of Economic Affairs (DEA) under Harold Wilson in the 1960s, the Treasury retained its primacy and power in Whitehall. Callaghan showed remarkable skill in keeping all his ministers on board during the International Monetary Fund crisis of 1976, but his successors generally moved away from collective Cabinet government to work bilaterally with the key players. For Thatcher, this technique was for a long time a source of strength, but it was not an infallible one, as demonstrated by the breakdown of her relationship with her second Chancellor, Nigel Lawson in 1989. When her personal economic adviser, Alan Walters, published a newspaper article that clashed with Lawson’s views, the Chancellor demanded she sack Walters. Thatcher refused; Lawson resigned; Walters then resigned as well; and by the end of the following year the Prime Minister herself had been forced from office. It was a sign that even a government committed to ‘rolling back the frontiers of the state’ could not escape intense scrutiny both of its economic management and of the personal relationships of those responsible for it.

Above all, it proved once again that getting rid of a Chancellor is no panacea for a Prime Minister in trouble. The same was true for Major when he dislodged Norman Lamont in the aftermath of ‘Black Wednesday’. Paradoxically, Blair found himself powerless to move against Gordon Brown at a time when the economy seemed to be performing well, despite a problematic relationship between the two which Blair recalled as being like that of ‘some quarrelling, married couple’.

The broader lesson to be drawn from the history of Prime Ministers and their Chancellors over the past 150 years is that, although difficulties may arise in part because of failed personal chemistry, how these problems play out is affected by the economic environment, the nature of the state, and public expectations about the types of issues that governments are expected to solve. In addition, the rise of the mass media has increasingly meant that personal differences between Chancellors and Prime Ministers are played out in the full glare of publicity. If Gladstone had not insisted on abolishing the Paper Duties, it might all have been very different.

Further reading

Edmund Dell, The Chancellors: A History of the Chancellors of the Exchequer, 1945–90 (HarperCollins, London, 1997)

Alistair Darling, Back from the Brink: 1000 Days at Number 11 (Atlantic Books, London, 2011)

Richard Toye is Professor of Modern History at the University of Exeter. His books include The Labour Party and the Planned Economy, 1931–1951 (2003), Lloyd George and Churchill: Rivals for Greatness (2007), and Churchill’s Empire: The World That Made Him and the World He Made (2010). In 2007 he won the Times Higher Education Young Academic Author of the Year award. He is a Fellow of the Royal Historical Society and a member of the History & Policy editorial advisory group.

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